Value-Chain Report -- Supply Chains & ERP: Getting The Most Out Of Your Investment

ERP systems can provide the foundation for improving supply-chain operations.

Enterprise Resource Planning (ERP) systems are nearly universal within larger firms and have been adopted by many mid-market companies as well. A very high percentage of the Fortune 1000 have ERP systems in place and many of these are "full suite" implementations encompassing financials, planning, order management, procurement, production, HR and other functions. Although the widely anticipated Y2K dilemma may have accelerated the need for transition from non-compliant legacy systems to Y2K-ready ERP systems, most organizations implemented ERP in anticipation of achieving significant benefits, including:

  • Automating and integrating core business processes;
  • Sharing common data and practices across the company;
  • Producing and accessing information in real time;
  • Leveraging best practices available within the ERP package;
  • Avoiding/eliminating costly custom system development and maintenance;
  • Speeding consolidation of financial and operating information in a multiple business unit environment. Reality Sets In Unfortunately, the great expectations typically surrounding an ERP implementation have been tempered by the desire to minimize the cost and time associated with getting the new system up and running. Extended implementations, excessive costs, culture shock and lack of true productivity gains has been the norm, rather than the exception. However, the inability to realize significant improvement is seldom caused by the new technology. More often, it is the result of self-inflicted behaviors or organizational deficiencies such as:
  • Unclear expectations;
  • Insufficient training;
  • Lack of buy-in by user;
  • Poor project management;
  • Insufficient user input;
  • Inadequate or absent executive sponsorship;
  • Lack of sufficient financial or human resources. In spite of these problems, the ERP system can provide the foundation for improving supply-chain operations. Significant value arises from the ability of ERP systems to institutionalize common processes, best practices and business rules across multiple organization and business units. Operational Stability Is The First Step The first step in leveraging the power and functionality of an ERP system to improve the overall effectiveness of the supply chain is to focus on achieving operational stability. Defining and implementing a standard set of business processes, workflows and data across the enterprise typically achieve this. The most straightforward approach in doing this is to utilize, to the extent practical, the practices and processes included in the ERP package itself, configuring them as needed to provide an appropriate fit to the specific needs of the business. These standardized processes create the foundation for integrating the various supply-chain processes that rely on synchronization and data integrity for improved performance. Having the ability to instantly recognize and react to customer orders, supplier activity, production results, shipments and deliveries enables compression of the time required by the entire supply network to sense and respond to constantly changing conditions. It is important not to underestimate the value of standardized business rules, processes and data. This is because standardized approaches provide operating efficiencies and scalability, positioning the company for future growth. Synergies gained as a result of standardization efforts are particularly valuable for those firms growing via acquisition. Maximizing The Value Of ERP On The Supply Chain Once an ERP foundation has been created and operational stability achieved, focus can shift to leveraging the robust functionality typically found in ERP systems. By applying focused improvements to end-to-end processes, such as Order to Cash or Procure to Pay, anticipated benefits will begin to materialize. For example, operational stability and functional capability allows the purchasing organization to evolve from a transactional focus to eProcurement, reducing costs without compromising data integrity. A key element supporting these improvements is elimination of disconnects among personnel, processes and the underlying technology by ensuring that users are properly trained and that organizational roles and responsibilities are aligned with the new capabilities. The ability to actively mine and utilize data also contributes significantly to improved quality of, and reduced time for, decision-making. It is unlikely that these benefits will be achieved without minor, although usually temporary, discomfort. Companies often implement inventory management, planning and procurement functionality and then experience a rise in inventory levels, parts shortages or other missteps initially. These issues are not unusual or longstanding if they are addressed quickly, before organizational resistance sets in. The Key Ingredient Is People The key ingredient in leveraging the power of ERP to improve supply-chain performance is people. Unfortunately, people routinely get marginalized as companies struggle to implement and pay for enabling technologies. This problem can be avoided by imbedding a few important principles into the ERP implementation/supply-chain process change process:
    • Focus on deriving measurable value from redesigned end-to-end processes by aligning ERP capabilities with supply-chain process priorities. Apply Pareto logic: Supply-chain processes that add little or no value through differentiation, such as preparation of shipping documents, should be aligned with standard functionality found in the ERP system. Any customization efforts should be directed at the 20% of supply-chain processes that create competitive advantage.
    • Focus on communication, training and management of organizational change. Any significant process and/or systems change that impacts the supply chain will impact a company's organization structure and engender some degree of organizational resistance. The objective is to ensure that users are truly prepared for the new approach.
    • Focus on stakeholder value. All aspects of the supply-chain-related ERP initiative must come together in a strong business case that defines how priorities are assigned and how stakeholders will measure value received. Executive sponsorship is a key element. Any investment that is expected to significantly improve a company's competitive position must have the support of top management. In turn, the executive sponsors must empower the implementation team to make the decisions necessary to ensure success.
    A well-implemented ERP system can be a powerful foundation on which to build an effective supply chain. The inherent capabilities of the ERP system -- common work processes, real-time data sharing, application integration -- support the demands for inventory visibility, CTP, real-time order management, proactive exception management and similar capabilities that customers are placing on supply chains. Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.
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